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From the monthly archives:
January 2011
A simpler analysis than the one proffered today in Gold should suffice. It points to at least 29.400, but 29.630 if any higher. That could seem exhilarating in the context of whatever else the day may bring, but it’ll take a bit more — specifically, a print exceeding last Thursday’s 29.810 spike high — to put the futures on track for a multi-day recovery spree next week.
Today’s analysis is filled with expert jargon, so for you Hidden Pivot novices, let me cut to the chase: While immediate downside potential appears limited, it would require merely a push above 1377.80 – just $4.00 above Tuesday night’s so-far high — to turn the hourly chart bullish. Now for the argot: Friday’s decisive penetration of a 1357.00 midpoint support would seem to have left the futures vulnerable to a fall to at least 1321.20, its ‘d’ sibling. However, the very sausage-y point ‘B’ demands the use of a one-off A, which can be found on the hourly chart. Once we do so, we see that the A-B leg is just a composite of a lot of little downlegs on the hourly chart. This is reason to mildly distrust the 1321.20 target and the short-term weakness that it would seem to imply.
SPY appears hellbound for at least 136.25, a Hidden Pivot that comes from the weekly chart, where A=87.00 on July 10. Let’s try a very low-risk directional play, butterflying the Feb 133/136/139 strikes. To put the position on, and to virtually eliminate theoretical risk, we’ll need to short two Feb 136 calls for as much as we pay for the offsets — a single Feb 133 call and a Feb 136 call. That would effectively be “doing” the butterfly for “even’ (i.e., no credit or debit), and it would yield a maximum theoretical profit of $300 per butterfly with the stock trading at 136 on expiration day (February 18). We’ll want to be careful about putting on this position, since little errors in a three-sided position can whittle away our edge. We may wind up legging into the position by buying a Feb 133-Feb 136 vertical bull spread when SPY dips to a Hidden Pivot low, and then shorting a Feb 136-Feb 139 call spread on a subsequent rally. Those two action together add up to: long 1 Feb 133 call; short 2 Feb 136 calls; long one Feb 139 call. However we do it, I will signal the appropriate strategy intraday in the chat room and by way of an update to this tout. This may seem like a lot of hard work, but I am going to work hard myself in an attempt to make back for you the cost of a one-year subscription.
Yesterday’s 118.43 high came within 0.05 points of surpassing a key peak recorded in August just ahead of a selling avalanche. There is no disparaging the importance of this peak, the penetration of which would re-energize the bullish impulse on the weekly chart. Unfortunately, bizarre strike-price adjustments have made this vehicle all but untradable, at least by retail customers. My strategy would be to butterfly the 127 strike, since that’s where DIA appears to be headed. As an alternative, we may be able to use SPY options as detailed elsewhere in today’s touts.
We needn’t merely spectate as the futures work their way toward a potential major top at 1356.00, since there are lesser targets we can use to get long each leg of the way. This one points to 1307.25, and although camouflage opportunities will be hard to find above these levels, one as close as 1282.50 lies below. That’s the Hidden Pivot midpoint associated with 1307.25, and any pullback that approaches it should be regarded as a potentially tradable bottom. I’ve reproduced a chart that shows the relevant pattern, since it’s not one that leaps to the eye.
I have my doubts that Steve Jobs’ leave of absence will adversely affect Apple’s fortunes, although his death certainly would. Even at that, he would leave behind one of the best companies this country has ever produced, along with a revenue stream that will continue to flow, one iTune dollar at a time, even in the worst economic times. In any event, we should all wish Mr. Jobs a return to good health, since he personifies America’s economic promise and potential. Concerning Apple shares, I’ll stick with the $383 target unless $297 (aka point ‘C’) is exceeded to the downside. I will also signal if this selloff produces the kind of looping c-d leg that can give us a buy-able midpoint pivot.
We hold a long-term position of 800 shares with an adjusted cost basis of 14.91. Since a selloff to 28.55 appears likely, let’s try to hedge the position if SLW rallies to the Hidden Pivot midpoint associated with that target, 32.12. Accordingly, I’ll recommend shorting eight February 33 calls. They should be trading for around $2, but to get the right price you should monitor the bid/asked spread as SLW approaches the target. ______ UPDATE (Tuesday, January 18, 11:56 a.m. ET): The stock opened on a gap to 32.42, allowing us to short the calls for the rigged price of 1.94. (The market makers were quite obviously buyers of this series.) Do nothing further for now. Our position is a covered write — insurance against further weakness, but with no upside cost if the stock is 34.94 or lower.
A bearish Hidden Pivot target at 26.895 is analogous to the one at 1313.10 given today for February Gold. Since the midpoint support at 28.370 has already been exceeded by a whopping 27 cents, the target must be considered an odds-on bet. Since we never want to chisel these forecasts in stone, we should be prepared to turn bullish if the futures hit 29.910 over the next few days. That’s a tick above a look-to-the-left peak recorded January 4 on the way down.
We Should Soon Know Gold’s Intentions
by Rick Ackerman on January 18, 2011 12:01 am GMT · 14 comments
Although we see nothing scary in gold’s so far 5.5 % fall from early December’s record highs, we’re monitoring the February Comex contract closely for the first hint that the selloff might be about to turn ugly. At the moment, that would require a drop of a little less than $50, to below 1317.40, without any intervening rallies lasting longer than a day. With the futures trading around 1365 late Sunday night, there is obviously not much margin for comfort, since quick, $50 selloffs are not that unusual with gold currently trading at historical heights.
How likely is a swoon of that magnitude (which would turn our intermediate-term outlook for gold bearish)? We estimate the odds at around 40 percent right now. However, using our proprietary Hidden Pivot Method to forecast price action over the near term, we expect no worse than 1321.20 before the February futures contract takes a bullish turn. Granted, that’s just $4 from our danger » Read the full article